In early August this year， according to the reports of a Russian newspaper， Gazprom came to Beijing for a new round of price negotiation. They had a reduced quote price of US$250 per cube kilometer， down from US$350 to US$380 before. Though close to the price for imported natural gas from Kazakhstan and Turkmenistan， this offer does not include the costs for natural gas transported from Siberia to China， and Gazprom wants China to pay 40 billion US dollars in advance to gain a guarantee of thirty years’ natural gas supply from Russia. Till now China and Russia haven’t settled down on natural gas price negotiation. Russian experts expressed that Russia may give up the cooperation mode of trading resources with loans for natural gas， because of the issues in oil contract payment， while Chinese experts call for a sincere cooperation on market development and ask Russia to pay right attention to the vast market in neighborhood.Divergence — price becomes the keyPang Changwei， a researcher at Energy Strategic Research Institute， China University of Petroleum， says that there is no tradition of advance payment in international market， as natural gas market is changeable. China could take stakes， but could not accept advance payment.Even if Russia reduces the price to US$250 per cubic kilometers， imported Russian gas costs more than domestic products in China. “China needs to standardize natural gas pricing mechanism，” Pang Changwei said， “China faces a dilemma: we rely on coal to source 70% of energy. If the price for natural gas with the same calorific value is higher than that for coal， it is impossible to use natural gas to replace coal.” He thinks that China should determine the price for natural gas in domestic market basing on the comparison with coal， not oil. There is a view in the industry that energy development strategy should center on electric power， take coal as the base， and focus on oil and natural gas and renewable energy.As to the pricing for natural gas exports， Tatiana Mitrova， a researcher at Energy Research Institute of Russia Academy of Social Science， mentioned two guide lines: one is oil-natural gas price aligning， and the other is the mining costs of natural gas resources in East Siberia. Mitrova said: “The period with low natural gas price is over， and now the extraction cost of new natural gas is higher.” The extraction costs for natural gas in East Siberia are higher than West Siberia where the products are targeting at Europe， so the price for natural gas exported to the east is higher. In addition， Mitrova said Russia was trying to align the price of natural gas to that of oil.Analysis — both have various choicesTo avoid being restricted by single source of energy， China is trying to diversify the sources of natural gas. Pang Changwei said， China and Russia should jointly boost the energy cooperation， and he admitted that China is trying to “realize diversification the sources of natural gas indeed”. Pang Changwei said: “Experts in China forecast that prices for natural gas will drop in 2013 due to overcapacity， particularly the influence of new supplies on existing natural gas supply structure， such as shale gas produced in the United State and Poland and liquefied petroleum gas (LPG) from Qatar. In this way， China expands the imports of East Siberian natural gas can ease the dependency of Russia on EU market.But Mitrova emphasized that China can buy natural gas from Burma and Central Asia， and also LPG.“However， Russia has choices too.” she said， “For example， the earthquake in March in Japan causes interruption in nuclear power supply， which stimulates the demand for LPG. Compared with Australian products， Russian LPG is more competitive. These are opportunities for Russia.”As to the cooperation on natural gas between China and Russia， Sun Yongxiang， a researcher from Eurasian Social Development Institute of the Development Research Center of the State Council， said: “Sino-Russian cooperation should prefer liquefied natural gas(LNG) projects to pipeline gas plans. If Russia sets up liquid gas facilities in gas fields in Sakhalin， it will be a good choice to export LNG to China. Meanwhile， LNG can be shipped to Hong Kong and other areas.”But， Pang doesn’t quite believe in the future of joint development between China and Russia on LNG， since he thinks China will establish natural gas pipelines in the east， for a high gasification cost of LNG. The LNG projects in Russia most are targeting at South Korea and Japan.Russian experts are interested in the shale gas development projects in China. However， neither Pang Changwei nor Sun Yongxiang favored shale gas for two reasons. First， it needs water injection， and China hasn’t plenty of water resources; second， shale gas projects are possible to cause earthquakes and damages to the environment. Pang Changwei was more bullish about the prospect of coalbed methane. He said: “CBM capacity will reach 15.0 billion cube meters in 2013， and may further rise to 30 billion to 50 billion cubic meters in the future. Progresses in CBM extraction technologies can help reduce the dependence on imported natural gas. The government should set the upper limit of dependence on foreign natural gas under 50%， to make fully utilization of coalbed methane. Pang Changwei believed that China should establish different pricing mechanisms for natural gas of civil and industrial use， to boost the use of expensive natural gas in strategic areas with high energy consumption， such as steelmaking， therefore to meet the requirements on energy consumption and environmental protection. Even so， it is still difficult for China to absorb that much gas， Pang Changwei thought that， unless China decides to develop natural gas based power plants.To solve the problem from a strategic viewIgor Donberger， director of Energy and Transportation Research Office of Institutes of Oriental Studies at Russia Academy of Social Sciences， raised his point of view that since the two countries have comprehensive strategic partnership， why not solve the price problem from a strategic view?Mitrova agreed that the Russian government attaches great importance to natural gas exports to the east， and the export price is commercially important to China. Now that price for natural gas is linked to that of crude oil， and oil price keeps hiking， so how to set export prices for natural gas and construct the infrastructure needed for natural gas extraction， etc. are very important.Donberger said， China and Russia， as the buyer and the seller， have a quotation price variation of US$ 100， but both sides should put the strategic cooperation at first when consider the price difference. He asked， since China domestic natural gas market is not mature yet， and does not conform to some common ideas of Russia on natural gas market， why not Gazporn go to China and develop infrastructure projects， as it does in Russia? In addition， Donberger is confident that Russia has plenty of natural gas to export to China.Sun agreed with Russian experts. He explaind that the strategy refers to these “big ideas and big plans”. The same as Russia， China also has strategies for future energy development， namely “diversification”. He said: “Besides Russia， China cooperates with other markets. For example， we can import LPG from the Middle East， and pipeline natural gas from Central Asia. China as the buyer can choose the providers with lower prices， and we don’t have to buy Russian natural gas. So the key to strengthen energy cooperation between China and Russia is to get the strategies aligned， and to realize mutual benefits.”Pang Changwei stressed that China and Russia should foster the market sincerely. Mitrova agreed and expressed， “It is impossible for Russia to force China to accept a price that they think unreasonable. At present China mainly relies on coal， but judging from the economic growth rate， as well as the growing demand for electric power， China will encounter sooner or later the situation that coal can no longer meet the demand for power. Therefore， no matter where the natural gas comes from， Russia or Australia， China will certainly lift the weight of imported natural gas.”According to Pang， in 2013 China will have a natural gas production of more than 100 billion cubic meters， and coalbed methane production of 15 billion to 20 billion cubic meters. In 2023， natural gas production in China will reach 220 billion cubic meters， and increase to 300 billion cube meters by 2030. By 2020， if the ratio of natural gas in energy consumption structure goes up from 4% at present to 10-12%， China will have to import half of the natural gas consumption.At the end， Pang was optimistic in the prospect for Sino-Russian cooperation on energy， and he estimated that China and Russia would come to an energy cooperation agreement on natural gas by the end of this December， and the formal contract would be signed next year when Russia begins a new presidency.